Answer: 36.0%

Work in **real dollars** since wages, benefits, and bond returns all keep pace with inflation. Let the employee’s annual real salary be **X**. ### Step 1: Present value of contributions The employee works for **35 years**, so the total real contributions are: \[ 35 \times X \times R \] where **R** is the contribution rate as a fraction of salary. ### Step 2: Present value of retirement benefits The pension is **70% of final salary**, and since salary is constant in real terms, the annual pension is: \[ 0.70X \] The pension is paid for **18 years**, so the total real value of benefits is: \[ 18 \times 0.70X = 12.6X \] ### Step 3: Set contributions equal to benefits for solvency For the plan to remain solvent: \[ 35XR = 12.6X \] Cancel **X**: \[ R = \frac{12.6}{35} = 0.36 \] So the required contribution rate is: \[ \boxed{36.0\%} \] ### Correct answer: C

Author: Manit Arora